This paper examines the dynamics of the skill supply and its incidence oneconomic growth in the presence of education policies. When there areindivisibilities in the financing of human capital, small differences in theinitial distribution of skills may greatly affect the stationarydistribution: the economy may end up in a “low skill trap”, or in a highskill equilibrium. The model implies that for some ranges of initialdistributions there will be intergenerational immobility. Finally,cross-country differences in long-term macroeconomic adjustment to educationpolicies may be attributed, among other factors, to the existence of acongestion effect in the education system.
